Daily Rate Update: April 16th-20th

Wells Fargo has finally come to terms with the Office of the Comptroller of the Currency and the Consumer Financial Protection Bureau to the tune of $1 billion. The bank will now put behind the lending abuses to settle the allegations. Wells had enacted a mandatory insurance program in its auto loan business and is on the hook for how it charged certain borrowers for mortgage interest rate lock products. Wells Fargo will now make restitution to customers and make changes to its risk and compliance practices.

A recent study by Arch Mortgage Insurance showed that housing became less affordable in the first quarter of 2018 which could make affording a house more difficult than it has been in decades. Arch MI went on to say that U.S. housing affordability worsened by 5% in the first quarter of 2018 and the monthly mortgage payments needed for home purchases could go up another 10% to 15% by the end of the year, making 2018 one of the worst full-year deterioration’s in affordability in the past 25 years.

Mortgage rates edged higher in the latest week due in part to declining Bond prices. U.S. Stocks rallied in the past week, which pressured Bond prices lower. Lower Mortgage Bond prices tend to push mortgage rates higher as they have an inverse relationship. Freddie Mac reports that the 30-year fixed-rate mortgage rose five basis points this week to 4.47%, a fresh 2018 high. That rate does carry an average 0.5 point added on top of the rate. Average commitment rates should be reported along with average fees and points to reflect the total upfront cost of obtaining the mortgage.

The Philadelphia Fed Index was released on Thursday showing a slight increase in its headline number while a few components edged lower during April. The index rose to 23.2 this month from 22.3 in March. Nearly 37% of the manufacturers reported increases in overall activity this month, while 14% reported declines. Within the report it showed that current new orders and shipments remained positive but fell 17 points and 9 points, respectively.

Oil prices are at their highest level since late 2014 after top exporter Saudi Arabia said it would be happy to see crude rise to $80 or even $100 while a recent report this week revealed that U.S. crude oil supplies have declined. West Texas Intermediate oil is at $69/barrel today, up from $26 seen in early 2016. As oil prices rise, so do gas prices at the pumps. The national average price for a regular gallon of gasoline rose to $2.74 today, up from $2.67 a week ago and up from $2.55 a month ago. The Energy Information Administration (EIA) reports that gasoline demand in mid-April was the highest on record and is the highest so far this year. Gas prices are also higher due to the annual switchover to summer grade fuel, which costs a bit more to refine as more crews are put to work to meet demand.

U.S. Stocks are higher as earning season continues to produce solid numbers. Mortgage Stanley reported that profits and revenues beat expectations in its quarterly earnings report. United Airlines and CSX Corp. beat earnings estimates while IBM reported profit margins fell short of estimates but revenues were higher for the second consecutive quarter after nearly six years of declines. Of the companies in the S&P 500 that have reported earnings, 80% have beat forecasts.

What might become one of the greatest political achievements in our lifetime is the potential denuclearization of North Korea and end of the 60-year war between North and South Korea. The stage appears to be set for a meeting between North Korea’s Kim Jong-un and President Trump. Headlines out this morning show that CIA Director and Secretary of State nominee Mike Pompeo, has already met with North Korea’s Kim Jong-un to lay the groundwork for such a meeting at a “neutral” site.

The Mortgage Bankers Association reported on Wednesday that its Market Composite Index, a measure of total mortgage loan application volume, rose 4.9% in the latest week. The refinance Index rose 4% while the purchase Index increased 6% from one week earlier. Mortgage rates remained unchanged with the 30-year fixed-rate conforming mortgage ($453,100 or less) steady at 4.66% with points unchanged at 0.46. The survey covers over 75% of all U.S. retail residential mortgage applications, and has been conducted weekly since 1990.

The Commerce Department reported on Tuesday that March Housing Starts rose 1.9% from February to an annual rate of 1.319 million annualized units, above the 1.268 million expected. February was revised higher to 1.295 million from 1.236 million. From March 2017 to March 2018, Housing Starts were up 10.9%. Building Permits, a sign of future construction rose 2.5% month over month to an annual rate of 1.354 million versus the 1.315 million expected.

However, all was not rosy within the report. Single-Family Starts, which account for the biggest share of the housing market, fell 3.7%from February, but rose 5.2% year over year. Housing Starts got a big boost from a 16.1% monthly increase from the multi-dwelling sector. Total Housing Starts saw a substantial gain in the Midwest and a slight increase in the Northeast; the South and West fell modestly.

Fannie Mae released its April 2018 Economic and Housing Outlook yesterday revealing it sees strong economic growth in 2018 persisting even as risks rise. Fannie Mae expects Gross Domestic Product to rise 2.7% in 2018, despite the possible downside risks stemming from future trade policy enactments. In addition, tax refunds and reduced withholdings are expected to boost consumer spending in March and the months ahead. Finally, soft residential investment in the first quarter of 2018 should prove temporary, as home sales resume their slow upward grind; inventory shortages are playing friend to prices but foe to affordability and sales.

Homebuilder sentiment edged slightly lower in April though it remains well into positive territory. The National Association of Home Builders (NAHB) reports that its Housing Market Index came in at 69 in April, down from 70 in may and just below the 70 expected. Within the report it showed that the current single-family home sales index fell to 75 from 77. “Ongoing employment gains, rising wages and favorable demographics should spur demand for single-family homes in the months ahead,” explaines NAHB Chief Economist Robert Dietz.

After three straight months of declines, retailers across the nation reported that consumers spent their hard-earned dollars in March. Leading the boost was spending on automobiles and health and personal care items. Retail Sales rose 0.6 percent in March, above the 0.4 percent expected and up from the decline of 0.1 percent in February. Consumer spending makes up two-thirds of U.S. economic activity and is crucial to a healthy economy. The Retail Sales report is a measure of the total receipts of retail stores from samples representing all sizes and kinds of business in retail trade throughout the nation.

U.S. Stocks are rising to begin the week as investors feel that any post-strike fallout from the missile attack on Syria from the U.S., U.K. and France over the weekend will be minor. In addition, Bank of America reported solid earnings after JPMorgan Chase, Citigroup and Wells Fargo reported better-then-expected results on Friday. In addition, New York Fed President Bill Dudley said this morning that Stock market valuations don’t look overvalued, which is helping to support higher prices.